Proprietorial and for profit event 2019
Recently we held our inaugural seminar focused on for profit seminars. We were joined by Matthew Adshead, Chair of the Independent Schools Association (ISA) and a Proprietor himself, who presented to an audience of Proprietors and Finance Directors working within the sector.
What challenges are facing for-profit schools?
Matthew began by sharing his journey to ownership of the Old Vicarage School in Derbyshire, that has rapidly reached capacity by living through its educational philosophy ingenium ac benevolentia, meaning character and kindness. Matthew then opened a discussion on current issues impacting the sector: The unknown impact of Brexit; the floating of the Labour party of introducing VAT on school fees and the unpredictability this may bring; rising mental health challenges of both staff and students and the impact of the increase in Teachers Pension scheme rates were all points of discussion.
The inspection process was highly topical, specifically the differences between the Independent Schools Inspectorate (ISI) and Ofsted inspections. The cost difference is a key factor for most proprietors opting for Ofsted, yet this results in an inspection by an organisation likely to be more critical and unaligned with the School’s values. Being part of an association, such as the ISA, allows access to ISI and it was highlighted that non-association propriety compliance has declined by 20% in the last five years.
The independent school’s PR challenge has been a continued talking point within the sector. The percentage of people who would send their children to independent school, if they were financially able, has dropped below 50% for the first time. A contributing factor to this is the media perception of independent school pupils, such as Eton School. As a result, independent schools must ensure they are promoting their school and what it does for society both in the sector and in their communities. This can be achieved through being linked to a non-profit association or other local schools.
Matthew concluded his presentation by sharing the comfort he had gained from being a member of the ISA and how the network of support and knowledge from others running owner-managed schools had contributed to his success of the Old Vicarage School.
Corporate tax: what you need to know
Louise Veragoo, Director in our business tax team followed Matthew by taking us through key points on capital allowances and raised some opportunities that may be available to proprietorial schools.
Capital allowances are the way HMRC gives tax allowances for capital spend. With independent schools incurring a large amount of capital purchase this is a key area for the sector. For the first time, the government has introduced a relief for structural buildings being 2% of the cost per annum. The detail is still a little vague in this area, with further clarity requested by HMRC, but it is likely to ensure greater relief in this area than there has been historically. The government has also increased the Annual Investment Allowance to £1m from 1 January 2019, meaning schools could benefit from full relief in the year of purchase for qualifying expenditure up to this level.
Schools who own residential property within the corporate entity should be wary about Annual Tax and Enveloped Dwelling (ATED). It applies to any residential property owned by a corporate entity where the value is over £500,000. There are various reliefs available for some employees but there are still filling obligations required.
Employment tax updates
To conclude the seminar, Nick Bustin, Employment Tax Director, spoke on the significant changes in the sector and the renewed focus by HMRC on off-payroll working. An area of likely change is the IR35 legislation and engaging individuals through personal services companies. The consultation is currently pending, but is predicted to mean the responsibility for assessing the employment status of the individual will be switched to the engager and that there will be the ability for HMRC to look through the corporate wrapper to the underlying agreement between the school and individual performing the work. The change is expected to come into effect from April 2020. It has been noted that there is a rising focus in this area and it was recommended that schools should review their arrangements.
Nick also raised changes to the termination payment rules with employer’s national insurance payable on non-contractual payments over £30,000 from April 2020.
Nick closed the seminar by highlighting the ongoing risk of reform to the rules on employers providing living accommodation, which is a point of interest to many schools. In 2016 the government started a consultation process on this issue, however is yet to release further detail. We understand this is still on the agenda and that it is a continued area of focus for HMRC. If you are providing living accommodation it is worth considering your risk in this area.
We intend to continue running this event for ongoing learning and networking opportunities. If any of the topics are of relevance to you please do get in contact with Tom Wilson, Partner in our education team who will be happy to assist.
Please check our website for details of our 2020 for profit schools event.
For further information on haysmacintyre's services covering for profit schools, please contact Tom Wilson at firstname.lastname@example.org.